Since 2014, ADISA has been involved in research into and communication about LKEs at the national level. Our role as an association of investment professionals gives us perspective on LKEs and, in particular, how any changes in the 1031 tax treatment would affect investors.

• ADISA urges California extreme caution in adding additional up-front tax burden on LKEs, for the known unintended consequences could be dire:
• California property values would suffer (reduced desirability for LKEs within and from outside California would definitely decrease local property values, for LKEs are integral to the California real estate investment market)
• Rental prices would increase because of increased investor cost of capital; in addition, down payment requirements would likely increase further slowing real estate purchases at all levels
• Velocity of real estate turnover would slow – increased capital cost would increase holding times (those on the borderline of considering an LKE would be deterred)
• Ancillary tax revenue would immediately decrease: less frequent turnover yield lower property transfer and recording fees, lower property tax assessments and tax base diminishment
• Related spending around LKE property transactions (construction, improvements, etc.) would suffer; in general, LKEs are higher capital expenditures relative to non-LKE purchases
• Additionally, ADISA offers the State of California any assistance into research efforts, as well as contacts, ideas and neutral advice on the best course for both the investors in California and the state government.

Read the letter in its entirety here.

The drafting committee consists of Larry Sullivan, John Harrison, Darryl Steinhause, John Grady, Tom Rosenfield and Catherine Bowman. The letter was signed by ADISA President Keith Lampi, Inland Private Capital Corporation.